JGBS: Cash Bonds Cheaper, Curve Flatter After HH Spending Beats

TYH5 is 108-06+, 0-01+ from NY closing levels. 

• Cash bonds are little changed in today’s Asia-Pac session after finishing 2-7bps cheaper yesterday, with a steeper curve, following stronger than expected ISM services and JOLTS data.
• Projected rate cuts for 2025 continued to recede with June 25 no longer fully pricing a 25bp rate cut. Tuesday’s close vs. morning levels (*) as follows: Jan'25 at -1.2bp (-2.3bp), Mar'25 -10.2bp (-10.9bp), May'25 -14.7bp (-16.3bp), Jun'25 -23.2bp (-24.2bp).
• Reminder, much of Thursday's data has been moved to Wednesday (Wholesale Sales, Weekly Jobless Claims) as well as the 30Y Bond auction re-open to avoid conflicts with Thursday's Federal Holiday/day of Mourning for former President Carter.
• The CME Group FI trade closes at 1315ET on Thursday. Thursday still includes Challenger Job cuts at 0730ET, Tsy 4- & 8W bill auctions at 1130ET, and several scheduled Fed speakers throughout the day.

RBA-dated OIS pricing is steady to 4bps firmer across contracts, led by May 2025. 

• A 25bp rate cut is now slightly less than fully priced by April (98%), with the probability of a February cut standing at 57%.
• For context, 32bps of easing was priced in for April just a week ago.

Figure 1: RBA-Dated OIS – Today Vs. Yesterday

Source: MNI – Market News / Bloomberg

In post-Tokyo trade, JGB futures are weaker, -22 compared to settlement levels, after a data-induced heavy session for US tsys.

• US tsys drifted sideways for most of the session after establishing cheaps after the morning's data: The JOLTS report saw surprisingly elevated job openings in November, but the quits rate reversed a surprise increase from October. Job openings were 8090k (cons 7740k) in November after an upward revised 7,839k (initial 7,744k) in October.
• Headline ISM strengthened to 54.1, a little higher than the 53.5 expected (52.1 prior), with New Orders (54.2, 53.7 prior) and Employment (51.4, 51.5 prior) exactly matching survey expectations. But Prices Paid soared to 64.4 (57.5 expected, 58.2 prior), jumping by the most since January to the highest level in 22 months.
• Holdings data from the BoJ show it sold ¥253.5 billion ($1.6 billion) worth of futures-linked government bonds to financial companies to ease the securities’ shortage in the market. The BOJ held ¥8.0746 trillion of notes due in September 2032 as of Dec. 30, down from ¥8.3281 trillion on Dec. 20, according to the data released late Tuesday. (per BBG)
• Today, the local calendar will see the Consumer Confidence Index alongside BoJ Rinban Operations covering 1-25-year JGBs. Tomorrow we have Nov labour cash earnings figures.